Creative Loafing Inc.'s board of directors has launched an investigation into two of its members -- both of them top executives at Cox Newspapers, the parent company of the Atlanta Journal-Constitution.
On May 29, CL's board created a special committee of board members to investigate whether Cox Newspapers CEO Jay Smith and CFO Charles "Buddy" Solomon divulged inside information on CL's operations to Cox in order to assist accessAtlanta, the AJC's new weekly entertainment guide. The free publication, available in street boxes, will likely compete with CL for advertising dollars.
"It's hitting everybody's gut in the wrong way. And that's why I think folks have set this special committee up," says CL CEO Ben Eason. "Were any rules broken? That's really what they're trying to figure out."
Eason worries that Smith's and Solomon's positions as CL board members gave the AJC an unfair advantage when the paper decided to launch accessAtlanta in direct competition with CL. He says his beef is not with any physical similarities accessAtlanta may bear to CL, but with the possibility that Smith and Solomon were able to gauge how successful accessAtlanta might be, based on "privileged financial information and strategic information" regarding CL.
Smith denies any wrongdoing.
"I think he's got a vivid imagination," the Cox Newspapers CEO says of Eason. "It's just unfortunate that that's what he thinks."
Smith and Solomon joined Creative Loafing Inc.'s board when it was formed in late 2000, after Eason took control of the Creative Loafing newspaper group from his mother, CL founder Debby Eason. In a hunt for an investor, Ben Eason found Cox, which sunk $5 million into the company in return for a 25 percent ownership share.
At the time, Eason told CL that Cox was a "strategic partner that understands our business and certainly understands what family ownership of newspapers is all about. We intend to continue to be vigorous competitors in the Atlanta market."
Eason now expresses regret for ever having made the deal.
"There are a few ways to look at this," Eason wrote in a June 2 memo to employees. "[O]ur attorney, Dave Snyder, summed it up as follows: 'If you invite the skunk to the party, you don't have much right to raise a fuss when the skunk starts to smell.'"
The May decision to investigate the board members' behavior was opposed by Solomon, in a 6-1 vote. Smith was not present.
Five of the eight board members will man the special committee. Those five work neither for the AJC nor CL. The committee is supposed to report its findings and recommendations, if any, within 90 days.
Asked whether the special committee might recommend suing Cox or trying to buy back Cox's share in the company, Eason says, "Certainly it's an option."
Smith, however, says there are "no plans" for Cox to sell back the stock. As for Eason's allegations, Smith says there's nothing to them.
"He's got a right to say it, and he's got a right to believe it," Smith says. "But he's also got the right to be wrong, which he is."
Cox Newspapers is owned by Cox Enterprises Inc., a privately-held company based in Atlanta. Eason and his two sisters own more than 60 percent of Creative Loafing Inc., which runs alternative weeklies in Atlanta, Charlotte, Sarasota and Tampa.
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